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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (2124)	3/15/2004 5:02:55 PM
From: gregor_us	Respond to of 116555

Very Good Post Mish and Key Re-Post of the Most salient paragraph from JW's post. Going forward, we must keep our eye on what the dollar does--and--the fact that we know Greenie needs and wants a lower dollar. Even this light touch of dollar strength is NOT good for the US economy.

To: mishedlo who wrote (2124)	3/15/2004 5:18:49 PM
From: Mike M2	Read Replies (3) \| Respond to of 116555

Mish, RE: European debt levels. Dr. Richebacher has mentioned Continental European consumers do not borrow to consume like the US consumer does. Borrowing for consumption is very much frowned upon and they don't abuse credit cards. Mike

To: mishedlo who wrote (2124)	3/16/2004 3:37:49 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 116555

If the FED hiked there would be mammoth bankruptcies, housing would collapse, housing jobs would fall of the cliff, the stock market would collapse, amd trillions of dollars in credit derrivatives would blow up in smoke. Along with cat's and dogs living together... hell freezing over, discovering God is an alien.... etc. This economy simply can not take a rate hike. Period. For one thing, there's no reason to hike interest rates. The market is not suggesting that an interest hike is necessary, as they are all shuffling money from equities to bonds. Secondly, the overall level of nationwide inflation does not merit an interest rate increase. Energy prices might be increasing, but we're still not seeing the price of consumer products following. Furthermore, productivity numbers are still very strong, meaning we're producing more per worker hour (workers being afraid of losing their jobs). Low rates and easy credit are not the same thing. Actually, and someone correct me if I'm wrong, but the rates the Fed charges at its overnight window, and the rates individual banks re-loan that money to consumers at are quite different. And easy credit can be constrained by the Fed upping the reserve requirements for member banks. Lending these banks at a low rate is a means of assisting them in gradually writing off non-performing debt without necessarily incurring huge losses. Which is why I watch the BKX for indications that the economy is once again overheating. And while it would appear to be "rolling over" at the moment, it's uncertain whether this will be a consolidation from a 10 year high, or a major correction. But considering that the BKX has broken a quintuple top (over 10 years), it's like that the US banking system is in much better shape than is being insinuated by its detractors (or merely in better shape than foreign competitors). bigcharts.marketwatch.com But the bottom line is that banks make money from performing loans, not defaults. And until the markets begin perceiving inflation in the US economy, those rates will stay low, and correspondingly, assist people in better handling their debt (refinancing.. etc). But I do have considerable concern over real estate prices and the resultant depreciation in market values for property should the RE bubble collapse.. Especially here in the DC area. But, in sum, the Fed can use a lot of tools other than hiking rates to decrease liquidity in the monetary system, including selling T-bills, which will drain money from the system. The last thing they want to do is increase rates and cause the US dollar to appreciate and increase DEFLATIONARY pressures. To a point, I believe the Fed is attempting to find the proper value for the US dollar where they are able to actually create a level of manageable INFLATION, where they could once again feel comfortable in raising rates because it would be a sign of full economic recovery. Everyone wants a weak currency vs the US$. Well the US wants a weak currency too! A rate hike here would support the US$. That is the last thing the US wants! Absolutely.. It's a return of the "beggar thy neighbor" protectionism (by currency proxy) that helped forment economic turmoil during the '30s. But this time around, when they sell something to us, the last thing they want to do is reconvert their profits into their native currency. Thus, they buy US assets, often at inflated prices. What he is correct on, however, is that China should not float the RMB. Bush and Snow have no idea what they are asking for IMO. I consider Bush's comments as a "shot across the bow" to the Chinese leadership. He's telling them that he has a lucrative political "card" to play should they fail to take the necessary steps to improve the transparency and liquidity of their banking sector. One must play "hardball" with the Chinese in order to get them to do what is only correct. Lord help them, and most of Asian countries, should the US congress start requiring equal reciprocity to all trade restraints implemented on their part to inhibit US exports to their countries. Hawk